Endogenous quality investments in the U.S. hospital market

High and increasing hospital prices could reflect market imperfections, including provider concentration. Yet high prices could also reflect increased willingness to pay by privately insured consumers for clinical and non-clinical quality. In this paper, we explore strategic quality choices where hospitals make quality investments to increase private revenue. We then measure the relationship between potential prices and numerous quality measures including patient satisfaction, hospital processes, risk-adjusted mortality, the revealed preferences of current Medicare patients, technology adoption, physician quality, and ED wait times. We show that across a range of measures quality is correlated with the profitability of the payer mix: hospitals with more potential privately insured patients are of higher quality.

Mortality Effects and Choice Across Private Health Insurance Plans

Competition in health insurance markets may fail to improve health outcomes if consumers are not able to identify high quality plans. We develop and apply a novel instrumental variables framework to quantify the variation in causal mortality effects across plans and how much consumers attend to this variation. We first document large differences in the observed mortality rates of Medicare Advantage plans within local markets. We then show that when plans with high (low) mortality rates exit these markets, enrollees tend to switch to more typical plans and subsequently experience lower (higher) mortality. We derive and validate a novel "fallback condition" governing the subsequent choices of those affected by plan exits. When the fallback condition is satisfied, plan terminations can be used to estimate the relationship between observed plan mortality rates and causal mortality effects. Applying the framework, we find that mortality rates unbiasedly predict causal mortality effects. We then extend our framework to study other predictors of plan mortality effects and estimate consumer willingness to pay. Higher spending plans tend to reduce enrollee mortality, but existing quality ratings are uncorrelated with plan mortality effects. Consumers place little weight on mortality effects when choosing plans. Good insurance plans dramatically reduce mortality, and redirecting consumers to such plans could improve beneficiary health.

How important is price variation between health insurers?

Prices negotiated between payers and providers affect a health insurance contract's value via enrollees' cost-sharing and self-insured employers' costs. However, price variation across payers is difficult to observe. We measure negotiated prices for hospital-payer pairs in Massachusetts and characterize price variation. Between-payer price variation is similar in magnitude to between-hospital price variation. Administrative-services-only contracts, in which insurers do not bear risk, have higher prices. We model negotiation incentives and show that contractual form and demand responsiveness to negotiated prices are important determinants of negotiated prices.

Cancer Etiology: A Metabolic Disease Originating from Life's Major Evolutionary Transition?

A clear understanding of the origins of cancer is the basis of successful strategies for effective cancer prevention and management. The origin of cancer at the molecular and cellular levels is not well understood. Is the primary cause of the origin of cancer the genomic instability or impaired energy metabolism? An attempt was made to present cancer etiology originating from life's major evolutionary transition. The first evolutionary transition went from simple to complex cells when eukaryotic cells with glycolytic energy production merged with the oxidative mitochondrion (The Endosymbiosis Theory first proposed by Lynn Margulis in the 1960s). The second transition went from single-celled to multicellular organisms once the cells obtained mitochondria, which enabled them to obtain a higher amount of energy. Evidence will be presented that these two transitions, as well as the decline of NAD+ and ATP levels, are the root of cancer diseases. Restoring redox homeostasis and reactivation of mitochondrial oxidative metabolism are important factors in cancer prevention.

How product standardization affects choice: Evidence from the Massachusetts Health Insurance Exchange

This paper examines the effect of choice architecture on Massachusetts' Health Insurance Exchange. A policy change standardized cost-sharing parameters of plans across insurers and altered information presentation. Post-change, consumers chose more generous plans and different brands, but were not more price-sensitive. We use a discrete choice model that allows the policy to affect how attributes are valued to decompose the policy's effects into a valuation effect and a product availability effect. The brand shifts are largely explained by the availability effect and the generosity shift by the valuation effect. A hypothetical choice experiment replicates our results and explores alternative counterfactuals.

Designing and Regulating Health Insurance Exchanges: Lessons from Massachusetts

The Massachusetts health care reform provides preliminary evidence on the function of health insurance exchanges and individual insurance markets. This paper describes the type of products consumers choose and the dynamics of consumer choice. Evidence shows that choice architecture, including product standardization and the use of heuristics (rules of thumb), affects choice. In addition, while consumers often choose less generous plans in the exchange than in traditional employer-sponsored insurance, there is considerable heterogeneity in consumer demand, as well as some evidence of adverse selection. We examine the role of imperfect competition between insurers, and document the impact of pricing and product regulation on the level and distribution of premiums. Given our extensive choice data, we synthesize the evidence of the Massachusetts exchange to inform the design and regulation on other exchanges.

Designing health insurance exchanges: key decisions

A cornerstone of health care reform is the establishment of state-level insurance exchanges where individuals and small businesses can purchase health insurance in an online marketplace. States are required to develop an exchange by 2014, or participate in a federal one. The exchanges will help people without employer-sponsored insurance find and choose a health plan to meet their needs. This Issue Brief reviews the experience of Massachusetts in developing a health insurance exchange and offers policymakers guidance on key features and likely consumer responses.